Appen falls on Citi downgrade

The artificial intelligence specialist will tumble out of the ASX 200 at the next rebalance, following a failed $1.2bn takeover bid.

Appen chief executive Mark Brayan. Picture: John Feder

Artificial intelligence specialist Appen will tumble out of the ASX 200 at the next rebalance – one of five S&P Dow Jones will remove from its index on June 20 – and the company slumped close to a five-year low on Monday after Citi downgraded the stock.

The investment bank’s equities analysts on Monday cut their recommendation from buy to neutral, noting Appen’s weaker than expected start to the year and risks that it could miss its annual earnings guidance.

Shares in Appen fell 3.3 per cent to $6.19, giving the company a valuation of about $763m. It comes less than two weeks after Canadian IT firm Telus walked away from its $9.50-per-share takeover bid, which would have valued Appen at $1.2bn.

The Sydney-based Appen creates human-curated datasets to train artificial intelligence programs and its customers are thought to include tech giants including Amazon.

Its shares were worth as much as $43.50 in August 2020.

“Appen management noted that … the weakness was primarily due to one customer, which we see as likely being Facebook based on our website visit analysis,” the analysts led by Siraj Ahmed said in a note to clients.

The analysts said that demand for human-labelled AI training data still exists and Appen is still an attractive takeover target given its market position.

They slashed their target price for the stock by 28 per cent to $6.60.

Appen chief executive Mark Brayan said in an interview last month the Telus saga demonstrated that his company “is still a valuable commodity”.

“We’ve got great people, great products and fantastic customers, and that’s why people do things like this, because there’s a lot of value in a business like ours,” he said.

“It underscores the importance of our customers and looking after them, because my reflection when this happened is that I want to make sure that whatever happens with this outcome, I‘m doing the right thing by my customers and the staff.

“So in some ways, it refocuses you on what’s important.”